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We have left some dollars and owe some punds, which is the same as simply shorting GBPUSD. Why should we short it more complicated, with 3 pairs?

That is relative cost of each pair, but you have to look at the Size of Each Trade and think of them as Units.

1 lot of EURUSD is 100,000 Units 1 lot of GPBUSD is 100,000 Units1 lot of EURGBP is 100,000 Units.

The reason your numbers don't come out equal to 0 each is because of the spread (cost of purchasing/selling a currency).

In a perfect hedge, lets say you Buy EURUSD, Sell GBPUSD, and Sell EURGBP.So if you Buy 1 lot = 100,000 Units of EURUSD, you are Buying 100,000 lots of EUR or selling 100,000 lots of USD.Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.Then with EURGBP, you would be Selling 100,000 Units of EUR and Buying 100,000 units of GBP.Then the overall trade would be, 0 units of all 3 currencies. That is how you need to look at it.

That is nonsense:So if you Buy 1 lot = 100,000 Units of EURUSD, you are Buying 100,000 lots of EUR or selling 100,000 lots of USD.If you buy 1 lot EURUSD you are buying 100 000 EUR and selling like 112 000 USD. Thats the point.

bestdarngood posted:Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'. I wonder how you can make any strategy with such knowledge of the system.

5astelija posted:bestdarngood posted:Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'. I wonder how you can make any strategy with such knowledge of the system.

5astelija posted:bestdarngood posted:Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'. I wonder how you can make any strategy with such knowledge of the system.

No, the value of the units doesn't matter, it is the number of units that matters.... You are still looking at it wrong. NUMBER OF UNITS and VALUE OF UNITS will not be equal. I agree with you on that. But the NUMBER OF UNITS matters for a hedging system more than the value of the units. If the prices all became 1:1:1, then both would equal out, but that is unlikely. But for having a safe hedge, you want to have an EQUAL NUMBER OF UNITS. Otherwise which ever currency that you have more UNITS of will be the commanding currency not the one that has the most value. What you fail to see is that 3 pairs of a hedge basket don't move equally in PIPs. For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

What you are saying isn't necessarily wrong, but their are other factors that you haven't completely considered and don't see unless you actually map out prices. You can't just take one closing price, but you need to take multiple price points and see how each pair moves relative to the others over different time periods and you can see what I mean.

bestdarngood posted:5astelija posted:bestdarngood posted:Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'. I wonder how you can make any strategy with such knowledge of the system.

No, the value of the units doesn't matter, it is the number of units that matters.... You are still looking at it wrong. NUMBER OF UNITS and VALUE OF UNITS will not be equal. I agree with you on that. But the NUMBER OF UNITS matters for a hedging system more than the value of the units. If the prices all became 1:1:1, then both would equal out, but that is unlikely. But for having a safe hedge, you want to have an EQUAL NUMBER OF UNITS. Otherwise which ever currency that you have more UNITS of will be the commanding currency not the one that has the most value. What you fail to see is that 3 pairs of a hedge basket don't move equally in PIPs. For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

What you are saying isn't necessarily wrong, but their are other factors that you haven't completely considered and don't see unless you actually map out prices. You can't just take one closing price, but you need to take multiple price points and see how each pair moves relative to the others over different time periods and you can see what I mean.@5astelijaI believe you are wasting your time explaining this matter to @bestdarngood

bestdarngood posted:For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

Correct, but that doesn't mean you get more profit - the pips are just 'cheaper' in euraud. Currencies are relative, so you cant compare them with pips, use percents. A 10% move in audusd would require x pips, while the same 10% move requires 2x pips in euraud - because the euraud price is roughly twice the audusd's.= I still disagree with you, and I think you overcomplicate things to see something thats not actually there. But I'll stop this nonsense now as @togr suggested :D

It is possible to create a hedge positions in different currency pairs but one has to match the notional amount of the buy side position with the sell side position. However, sometime hedging could be risky also when spread widens due to market volatility. Take the example of recent GBP flash crash, the spread widened a lot and I have seen many of fellows’ account getting burned due to that.

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